Tax Study Can Help Fix State's Rudderless Economy

Taxes

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BRIAN O'SHAUGHNESSY | OP-EDThe Hartford Courant

During the campaign for governor, it is safe to assume that economic issues will be discussed in detail. As the conversation meanders through familiar territory — deficits, debt, unfunded liabilities, job data, taxes and expenditures — one fact will be painfully clear: Connecticut has no economic policy.

Politicians criticize the status quo to gain office and then attempt fixes that show success within election cycles of less than four years. This gives birth to short-term thinking and crude approaches designed to win votes. Unfortunately, sound-bite economics does not generate policy that supports long-term economic growth and financial stability.

That could change in the next two years.

The most important bill passed during this past legislative session was unquestionably "An Act Concerning a Comprehensive Study of the State Tax Structure."

This law requires the General Assembly to consider all state taxes and analyze whether each tax "encourages economic growth, is efficient, stable, simple and predictable, and fair and equitable." Because our state economy is what generates all tax revenue, this law requires that we ask fundamental economic questions:

•How do we generate taxes and what is the impact of taxing specific revenue or assets?

•Would adjusting our sources of tax revenue promote economic growth?

•What policy decisions inhibit economic production?

•What new policies can be adopted that will increase revenue?

In reality, the tax structure law requires the legislature's Finance, Revenue and Bonding Committee to examine the financial structure that produces budget deficits year in and year out. The legislation demands a comprehensive review of how our state funds — and finances — its operations, and whether the existing structure is sustainable.

The tax structure law requires a broad analysis that examines not only from where our tax revenue is derived, but also what policy decisions erode or undermine the ability of the state's economy to generate revenue and be financially stable. If there are policies that inhibit business growth, they should be addressed. If there are barriers to employment that prevent people from working and paying taxes, action needs to be taken. If there are municipalities that do not contribute adequately to the public coffers, then economic development in our cities should be discussed.

In the end, the tax structure law is so important because it is comprehensive. Too often, we discuss specific issues without drawing connections. Take, for example, jobs and education. The municipalities with the highest unemployment also have the largest academic achievement gap. Most of the problems we discuss can be reduced in scope by a strong and vibrant economy.

Our economic trends are not limited by election cycles. Connecticut has lost jobs and experienced a demographic change over the past 30 years that has reduced the median income. Our economic and tax policies should — finally — adjust to these changes. Often, our tax burden is greatest in the communities that can least bear it. How to adjust is a difficult question, but there are tools evolving that capture and analyze a wide variety of data. These tools can provide guidance about how to maximize taxpayer investment and promote revenue growth.

Let us ignore the irony that we needed to pass a law to perform an analysis that most constituents assumed government performs regularly. The tax structure law provides a unique opportunity to establish an economic direction that can strengthen the state and provide a blueprint for years to come. It will require cooperation of a type we don't often see in government. It will also take courage to make changes. Clearly, however, the status quo is not an option.

As the candidates bicker about micro issues, constituents should insist they discuss long-term and sustainable economic growth. Many believe this is the issue that encompasses all others. People who care about policy bemoan the lack of a dedicated and independent economic policy entity within our state. The tax structure law could and should change that for generations to come.

Brian O'Shaughnessy of New Haven is a consultant who works to facilitate the investment of public and private capital to create measurable improvements in human productivity and living conditions.